Showing posts with label stock watchlist. Show all posts
Showing posts with label stock watchlist. Show all posts

Tuesday, January 6, 2015

Dividend Kings List for 2015

The dividend kings index includes companies which have managed to increase dividends for over fifty consecutive years. A company that regularly raises dividends to the tune of fifty years in a row is the type of company that every serious dividend growth investor should study. None of those companies are automatic purchases however. The important thing is to learn the type of business those companies are in, and what factors might have helped them achieve the dividend success. By gathering little bits and pieces of wisdom along the way, the dividend investor greatly increases their knowledge of business. Knowledge is like compound interest – it builds and accumulates over time.

The companies in the 2015 dividend kings list include:

Yrs Div Gro
10-yr Div Gro
Fwd P/E
10 year EPS
American States Water

Dover Corp.

Northwest Natural Gas

Genuine Parts Co.
Parker-Hannifin Corp.

Procter & Gamble Co.
Emerson Electric
3M Company
Cincinnati Financial

Vectren Corp.

Coca-Cola Company
Johnson & Johnson
Lowe's Companies
Colgate-Palmolive Co.
Lancaster Colony Corp.

Nordson Corp.

It is very interesting that the dividend kings returned 14.10% in 2014 and 30.70%. In comparison, the S&P 500 returned 13.50% in 2014 and 32.305 in 2013.

There was one company that was taken from the list in 2014. Diebold (DBD) had managed to grow dividends for 60 years in a row. Unfortunately, the company failed to increase distributions in 2014, which violated the long history of consistent dividend growth. If Diebold starts growing dividends again 2015, it would take it until 2075, before it achieves the same level of accomplishment. Given the fact that earnings per share didn’t grow at all in the past decade, but followed an erratic pattern, I am not surprised that the dividend was left unchanged. Rising earnings per share are the essential fuel behind future dividend growth.

There were no additions in 2014 to the list. Based on my analysis of dividend streaks, it looks like there won’t be an addition until sometime in 2016, when Hormel Foods (HRL) and Tootsie Roll Industries (TR) reach dividend king status. Currently, each of those two companies has managed to grow dividends for 48 years in a row.

I believe the valuations are a little overstretched right now for many of the companies on the list. The only companies which meet my entry screen of valuation, growth and dividend sustainability include Johnson & Johnson and Emerson Electric. If I were willing to reduce the entry yield to 2%, I could add Dover and Parker Hannifin on the list for further research.

Other companies like Cincinati Financial (CINF) have decelerated their rate of dividend growth, which is slower than the ten year average. Coca-Cola (KO) is a great company I am holding on to, but the problem I am seeing is that it has been unable to grow earnings per share for several years in a row. Without earnings growth, dividends will not grow over time and the intrinsic value of the business cannot grow either. For certain companies like Colgate-Palmolive (CL), valuations are a little high above 25 times earnings. I also find it hard to justify purchasing a utility which has increased dividends by 3%/year at an entry yield below 4%. Investors who overpay even for the most stable companies with the widest of moats might be in for some poor returns in the first decade of their investment. Hopefully we would see a sustained correction in 2015, which will correct the excess we are seeing. Let's wait and circle back in early 2016 on that.

Full Disclosure: Long KO, JNJ, PG, LOW, CL, MMM, EMR,

Relevant Articles:

The Dividend Kings List Keeps Expanding
Dividend Champions - The Best List for Dividend Investors
Dividend Champions Index – Five Year Total Return Performance
S&P 8000 – The power of reinvested dividends in action
How to be a successful dividend investor

Wednesday, April 14, 2010

16 Quality Dividend Stocks for the long run

The dividend yield on the S&P 500 has been declining throughout 2009, amidst one of the worst years for dividends since 1955. Back in late 2008 and early 2009, yields on major market indices exceeded 3%. Currently the dividend yield on the S&P 500 is 1.70%. However, if we remove the negative yield effect of non-dividend payers in the index, the dividend yield increases to 2.30%.

In order to be flexible in this market and not limit myself only to higher yielding stocks with disappointing dividend growth prospects, I am considering lowering my entry yield criteria to 2.50%, down from the 3% which was in effect since the end of 2008. As long as the selected companies for purchase have long histories of consistent dividend raises in addition to having good prospects for future dividend growth, my yield on cost would keep on increasing over time.

The screening criteria applied toward the S&P Dividend Aristocrat index was:

1) Current yield of at least 2.50%
2) Dividend payout ratio no higher than 60%
3) Price/Earnings Ratio of not more than 20
4) 25 years or more of consecutive dividend increases

These investment ideas are only the beginning blocks of a sustainable dividend portfolio. Investors should strive to maintain a dividend portfolio consisting of at least 30 individual securities representative of as many sectors as possible. The process of building a dividend portfolio is long, as it takes time to find enough qualified candidates for further research. As a result investors should consistently apply their screening method under all market conditions, in order to take advantage of market opportunities, and include enough of the best rising dividend stars available.

Full Disclosure: Long all stocks mentioned above except LLY and VFC

This article was included in the Carnival of Personal Finance #253 (Demotivational Version)

Relevant Articles:

- Dividend Aristocrats List for 2010
- Emotionless Dividend Investing
- Yield on Cost Matters
- The Dividend Edge

Wednesday, April 7, 2010

Three Dividend Strategies to pick from

Most new investors typically tend to focus on the companies with the highest dividend yields. I am often being asked why I never write about companies such as Hatteras Financial (HTS) or American Agency (AGNC), each of which yields 16% and 19% respectively. While some of my holdings are higher yielding companies, I typically tend to invest in stocks with strong competitive advantages, which have achieved a balance between the need to finance their growth and the need to pay their shareholders.
After looking at my portfolio, I have been able to identify three types of dividend stocks.

The first type is high yield stocks with low to no dividend growth.

Realty Income (O) (analysis)

Enbridge Energy Partners (EEP)

Kinder Morgan Partner (KMP) (analysis)

Consolidated Edison (ED) (analysis)

It is important not to fall in the trap of excessive high yields, caused by the market’s perceptions that the dividend is in peril. Recent examples of this included some of the financial companies such as Bank of America (BAC). While current dividend income is important, these stocks would produce little in capital gains over time.

The second type is low yielding stocks with a high dividend growth rate.

Wal-Mart (WMT) (analysis)

Aflac (AFL) (analysis)

Colgate Palmolive (CL) (analysis)

Archer Daniels Midland (ADM) (analysis)

Family Dollar (FDO) (analysis)

One of the issues with this type of strategy is that it might take a longer time to achieve a decent yield on cost on your investment. It is difficult to achieve a double digit dividend growth rate forever. Once you achieve an adequate yield on cost on your investment, it might slow down dividend increases. The positive side of this strategy is that many of the best dividend growth stocks such as Wal-Mart (WMT) or McDonald’s (MCD) never really yielded more than 2%-3% when they first joined the Dividend Achievers index. The main positive of this strategy is the possibility of achieving strong capital gains.

The third type is represented by companies with an average yield and an average dividend growth. Some investors call this the sweet spot of dividend investing.

Johnson & Johnson (JNJ) (analysis)

Procter & Gamble (PG) (analysis)

Clorox (CLX) (analysis)

Pepsi Co (PEP) (analysis)

Automatic Data Processing (ADP) (analysis)

There is a common misconception that buying the stocks in the middle, would produce average returns. Actually finding stocks with average market yields, which also produce a good dividend growth could produce not only exceptional yield on cost faster, but also capital gains as well.

At the end of the day successful dividend investing is much more than finding the highest yielding stocks. It is more about finding the stocks with sustainable competitive advantages which allow them to enjoy strong earnings growth, which would be the foundation of sustainable dividend growth. A company like Procter & Gamble (PG) which yields almost 3% today butraises dividends at 10% annually would double your yield on cost in 7 years to 6%. A company like Con Edison (ED) would likely yield around 6% on cost in 7 years. The main difference would be capital gains – Procter & Gamble (PG) would likely still yield 3%, while Con Edison (ED) would likely yield 6%. Thus the investor in Procter & Gamble would have most likely doubled their money in less than a decade, while also enjoying a rising stream of dividend income.

Full Disclosure: Long all stocks mentioned in the article except HTS and AGNC

This article was included in the Carnival of Personal Finance #252: Famous People With Tax Troubles Edition

Relevant Articles:

- 2010’s Top Dividend Plays
- Six Dividend Stocks for current income
- Best Dividends Stocks for the Long Run
- Capital gains for dividend investors
- Dividend Growth beats Dividend Yield in the long run

Wednesday, March 17, 2010

The right time to buy dividend stocks

With the market getting overextended for several months now, and my unwillingness to chase many dividends stocks, it is time to reflect on whether I am doing the right thing or not. Some stocks such as Emerson Electric (EMR) and Realty Income (O) which I was going to add to either in March or in April are trading at valuations that seem richer than what I am willing to pay for at the time.

After writing dividend growth investor blog for over two years now, I have been able to observe investor reaction to my posts. My main source of ideas for improvement has always been with comments which offer some sort of criticism, be it constructive or not. It is understandable however that one cannot please everyone, and as a result I have pretty much kept at my ideas that dividend growth investing is a superior investing strategy for investors at all stages in their life. One of the largest criticisms that I often receive is from investors with a short-term vision in mind. Back in early 2008, the problem for owning US stocks was the weakening of the US dollar and the rise in oil prices. Somehow all commodity rich developing countries which were selling natural resources at inflated prices were being touted as the next big thing. Of course once the bubble collapsed in 2008, many countries such as Russia were hit hard and the lack of diversification in their economies was much evident.

Back in late 2008 and early 2009 most investors were constantly being bombarded with negative stories about the end of buy and hold and the death of dividend investing after a record number of dividend cuts occurred. Of course it is difficult to separate the short-term noise, from the long term story behind the economy or a particular business. The truth is that in order to be successful in investing, one should stick to a certain strategy through thick and thin. Thinking too often could cause investors to deviate from their plans, and suffer from consequences as a result. Famous speculator Jesse Livermore once said that money is made by sitting, not by thinking. It is uncommon to find men who are both right and sit tight as well.

The first few months of the bear market recovery that began in March 2009 were characterized by bears speculating about a double dip recession, nationalization of major banks etc. After a few months of stocks hitting new 52 week high however, the risk of missing out on the rally and having to pay higher prices in the future if money is not deployed now is increasing every day.

Warren Buffett had mentioned in one of his letter sto shareholders that he would rather buy an excellent business at a fair price, rather than purchase a lousy business at a fire sale price. Speaking of the two companies I mentioned above, I have to decide whether they are excellent business trading at rich valuation, or whether they represent average businesses trading at inflated prices.

My strategy for my dividend portfolio is to dollar cost average my way into approximately ten stocks per month, reinvesting dividends selectively and building a diversified portfolio.

The truth of the matter is that if I keep following my strategy, it shouldn’t really matter in the long run whether I purchased Emerson (EMR) at 45 or at 48. This should hold true as long as I do not have more than 3 or 4% allocated to that position and as long as the company is able to generate a sufficient enough earnings growth to power up the dividend hikes into the next decade. Time and again I have noticed how some of the best dividend growth stories ever such as Gillette, Geico, Wal-Mart (WMT) or McDonald’s (MCD) didn’t yield much, yet they had outstanding competitive advantages and solid dividend and earnings growth. Currently Emerson Electric (EMR) and Realty Income (O) offer their lowest yields in many months, which coupled with the low dividend growth as of lately make them a pass until the next dip in prices. However, given the fact that there is seldom any “perfect time” to deploy cash, I would definitely add to those two positions on the next dip.

This article was included in the Carnival Of Personal Finance #249: Who’s Awesomest? Pirates Vs Ninjas Vs Nuns Vs Robots Vs Real Estate Agents Vs Zombiess

Full Disclosure: Long EMR, MCD, O and WMT

Relevant Articles:

- Realty Income (O) Dividend Stock Analysis
- Ten Dividend Kings raising dividends for over 50 years
- Buffett the dividend investor
- Should you re-invest your dividends?

Wednesday, March 10, 2010

Capitalize on China’s Growth with these dividend stocks

China seems to be the engine of global growth these days. The country has managed to turn itself into the manufacturing facility of the world, producing almost everything that consumers in the western world need. It is being said that investing in China in 2010 is similar to investing in USA in 1910 or investing in the UK in 1810. Whether this turns out to be true or not, the Chinese economy has managed to expand rapidly over the past decade, fueled by demand for cheap goods which its skilled and low-cost labor force produces for worldwide markets. While there are plenty of ways to invest in the Chinese economic growth, including Chinese listed ADRs traded on the NYSE or Nasdaq, few have a long history of dividend increases, which would make them an interesting income play.

Most global companies do have a presence in China however. Some of these companies have had operations in the country for years, and have also developed a strategy for expanding their business there, which would provide strong earnings and dividend growths for the future. Some of these companies include well known dividend stocks such as McDonald’s (MCD), Coca Cola (KO), Wal-Mart (WMT) and Philip Morris International (PM).

While Philip Morris International (PM) does face declining demand in Western Europe, which accounted for a little less than 50% of its operating income, the company could benefit from growth in emerging markets such as China or India as well as from strategic acquisitions. The company’s low penetration in the Chinese market, which represents one third of the worldwide demand for tobacco products, could present an attractive opportunity. PMI has reached an agreement with the China National Tobacco Company (CNTC) for the licensed production of Marlboro China and the establishment of an international equity joint venture outside of China. In August 2008 production of Marlboro began under license in two factories. The joint venture has successfully launched three Chinese heritage brands in six international markets. Check my analysis of the stock.

Coca Cola (KO) has operated in China since 1979 and was a major sponsor of the recent summer Olympic Games held in Beijing. The company is planning to triple the size of its sales in China over the next decade, and double the size of its bottling plants in the country. China is the third largest country for Coca Cola by revenues, and it’s also a big part of the company’s expected growth in sales over the next decade. Coca Cola is already the largest soft drinks brand in China and its volumes are twice the size of rival PepsiCo (PEP). The potential of the Chinese market is immense – last year there was an average per capita annual consumption of 28 Coke products in China, which was much lower than the 199 Coke products in per capita consumption in Brazil (source). Check my analysis of the stock.

Wal-Mart (WMT) currently has 267 locations in China, operating under Wal-Mart or Trust Mart’s names. The company had 3615 international locations at the end of 2008. There is still room for growth in Chinese operations, fueled by the increase in number of middle-class families in the country. For Wal-Mart, China represents the biggest frontier since it conquered America. China's voracious consumers are pushing retail sales to a 15 percent annual growth rate; that market will hit $860 billion by 2009, according to Bain & Co. (source). Check my analysis of the stock.

McDonald’s (MCD) currently owns over 2000 stores in China. The company has an ambitious plan to expand operations by developing 500 new locations in 3 years. McDonald’s opened 146 restaurants in 2008 and earlier this year expected to open 175 restaurants in 2009. The company has been able to increase sales volumes by expanding its menu of items, offering convenient store hours and opening drive-thrus in the process. Restaurants with drive-thrus are more likely to achieve higher sales and satisfy the demands of the increasingly mobile society in China. Expanding store hours and adding breakfast items to the menu is another opportunity for internal growth at Mcdonald’s Chine operations. Check my analysis of the stock.

McDonald’s (MCD), Wal-Mart (WMT) and Coca-Cola (KO) have each raised dividends for more than 25 years in row. Expanding their operations in China would be the cornerstone that would provide the necessary earnings growth for these dividend aristocrats to be able to raise distributions for the next two decades.

Full Disclosure: Long MCD, PM, WMT, KO

This post was featured on the Carnival of Personal Finance – Tour of Ireland Edition

Relevant Articles:

- Philip Morris International versus Altria
- Seven dividend aristocrats that Buffett owns
- Dividend Aristocrats List for 2010
- Valuing Dividend Stocks

Wednesday, December 2, 2009

Top US Dividend Stocks to Accumulate Now

The stock market has been on a consistent bull run since it hit a low in March 2009. As stocks keep hitting new highs for the year however, buyout by the prospect of economic recovery, many value investors are getting nervous about valuations. The P/E ratio on the S&P 500 for example has risen to its highest levels in several years. In addition to that, many dividend stocks, which were once selling at very attractive valuations just a few months ago, are becoming expensive.

There are several ways that the market could correct itself. First, since the market is typically a strong indicator that predicts contractions and expansions in the economic cycle much better than most economists, the current upturn could be a forecaster of economic growth. This would lift earnings, decrease unemployment and bring valuations down to more reasonable levels, without causing any depression in stock market prices overall. If the market is ahead of itself however, it could stay flat for a period of time.

The second option is for the market to collapse and bring valuations to more reasonable levels. It seems that most investors and pundits believe that a severe decline in stock prices is in the cards over the next few months. Since few people seem to believe in the market rally however I strongly believe that it could easily continue.

The third option could be that the market doesn’t correct itself but keeps roaring higher, propelled by expectations of strong corporate earnings. When earnings rebound, stocks won’t look as expensive as they do today.

As a dividend investor I try to allocate some funds into purchasing several stocks every month. The main problem I have been having since July is that the same stocks are appearing on my buy screen for several months now. While it is always good to be able to purchase what you might consider the best dividend stocks in the world, history has definitely showed us that even the bluest of blue chips might not be bulletproof in the long run. It is concerning to add money to the same stocks each and every month, which could make a portfolio more concentrated and less diversified. Valuations are an important factor, which every dividend investor should implement as part of their entry criteria, in order to make sure that they don’t overpay for stocks. Overpaying for stocks could lead to substandard returns over time.

I screened the list of dividend aristocrats for dividend payout ratio of less than 50%, dividend yield of 3% and P/E of less than 20. I did relax the criteria a little bit to include stocks with ucrrent yields of 2.80% as well as those with payout ratios of up to 55%. The stocks which look promising right now include:

As a matter of fact, stocks could continue climbing the wall of worry far longer than anyone could stay sane. Disciplined dividend investors should stick to their strategies in the meantime and refuse to concentrate their portfolios or overpay for stocks. While keeping a portion of your portfolio in cash or fixed income might seem ludicrous given the low interest rates, it could provide some cushion to ones portfolio should the right stocks fall below the right entry prices.

If stocks were to keep going higher in a straight line and if Dow and S&P 500 reach all time highs in the process, by pushing valuations higher and higher, investors would probably be kicking themselves for “missing the boat”. As individual investors however, we are not rewarded based off short term performance, unlike mutual fund managers who have to be invested at all times. Thus, individual investors have an advantage over the pros right now since they could decide for themselves whether paying top dollar for adding to existing stock positions is worth it or not.

Back in 1990’s the stock market was in the midst of a strong bull run, which pushed valuations to stratospheric levels. Investors enjoyed double digit annual increases in stock prices and thus they didn’t care that rising prices pushed dividend yields to very low levels. Fast forward one decade and we are still where we were in the late 1990’s. Even strong blue chip dividend growers such as McDonald’s (MCD), Automatic Data Processing (ADP) and Pepsi Co (PEP) were yielding less than 2% each, which made them largely unsuitable for a dividend growth portfolio at the time.

In order to be successful, a dividend investor has to identify the right dividend growth stocks, establish positions at attractive valuations over time, reinvest dividends selectively and diversify across sectors, industries and continents. These sound strategies would ensure the long term survival of the individual investor even during the most adverse of conditions.

Full Disclosure: Long positions in all of the securities above

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